What Is A Credit Card Balance And What Does It Mean For You?

Checking your credit card balance is something you might do a few times a month or, at the very least, when you get your monthly statements. But while the number itself gives you a snapshot of what you owe, you may not fully understand what a credit card balance actually represents.

A credit card balance is more than just what you owe. It also affects how much interest you might owe and how much available credit you have left.

Here, we’ll review what a credit card balance is, answer questions about different terms (What does current balance mean on a credit card statement?) and help you decide how much of your balance to pay each month.

What Is A Credit Card Balance?

A credit card balance is the total amount of money you owe your credit card issuer at a specific point in time. It includes purchases, interest charges, fees and any other transactions that have been posted to your account.

Your credit card balance helps determine:

Credit card balances can change frequently. Purchases, interest charges, fees, payments, refunds and pending transactions all affect your balance throughout each billing cycle.

For example, suppose you start a billing cycle with a zero balance and then spend $800 during the month. Your statement should close with an $800 balance. You might then spend another $200 before the payment due date.

At that point:

If you pay the full $800 statement balance by the due date, you should avoid interest charges despite your current balance being $200 higher. That’s because that $200 isn’t due until your next billing cycle, so you shouldn’t be charged interest on it before that next bill comes due.

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Credit Card Balance Terms You Should Know

Within the context of a credit card balance, there are certain concepts you should be familiar with.

Statement Balance

Your statement balance is the amount you owe at the end of your billing cycle. Paying your full statement balance by the due date usually allows you to avoid interest charges on purchases.

Your statement balance does not include purchases made after the billing cycle closes.

Current Balance

Your current balance reflects the total amount you owe right now, including recent purchases, payments, interest and pending transactions (though sometimes those are not included in your current balance).

Because transactions post continuously, your current balance can change daily or even multiple times a day. This number is useful for tracking your spending and monitoring your available credit, but you don’t necessarily need to pay your current balance to avoid interest charges.

Outstanding Balance

Outstanding balance is a broader term often used interchangeably with current balance. It generally refers to the total unpaid amount currently owed on your credit card.

Minimum Payment

Your minimum payment is the smallest amount you must pay your credit card issuer by the due date to keep your account in good standing. Credit card issuers usually calculate minimum payments as a percentage of the balance plus fees, interest or overdue amounts, though methods vary by issuer.

If you make your minimum payment by its due date, you’re considered on time. You won’t be reported as delinquent or late to the credit bureaus if you have an outstanding balance, so long as you keep up with your minimum payments.

But you should know that if you make your minimum payment only, interest will generally continue to accrue on your remaining balance. Over time, that could add up.

Available Credit

Available credit is the remaining amount you can charge on your credit card before reaching your credit limit. It’s calculated by subtracting your current balance from your credit limit.

For example, if you have a $5,000 credit limit on your card and your current balance is $3,500, your available credit is $1,500. Available credit matters because large balances relative to your limit can hurt your credit score.

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How Is Your Credit Card Balance Calculated?

Your credit card balance changes whenever transactions are added to or removed from your account. Several types of activity can impact your balance:

Payment Timing Matters

The timing of your credit card payments plays a major role in whether interest accrues on your account. Most credit cards offer a grace period on purchases if you pay the full statement balance by the due date.

During the grace period, you can avoid interest on new purchases. However, if you carry part of the statement balance forward, interest may begin accruing.

For example, say your statement balance is $2,000 and your statement closes on May 15. Your payment is due on June 9. If you make your $2,000 payment on June 4, you shouldn’t accrue interest on that amount since you’re within the grace period.

But let’s say you have a $2,000 statement balance and pay $200 on June 4. In that case, you’re considered on time with your payment for credit scoring purposes. But the remaining $1,800 will generally accrue interest.

Also, once you lose your grace period for carrying a balance forward, you’re charged interest on the unpaid portion of your balance as well as purchases in the new billing cycle based on the date each purchase is made.

How Does Your Credit Card Balance Affect Your Credit Score?

Your credit card balance could impact your credit score in two ways.

Credit Utilization

Credit utilization measures how much of your available revolving credit you’re using at a given point in time. For example, if you have a $10,000 credit limit and a $3,000 balance, you’re at 30% utilization.

The lower your credit utilization is, the more it can help your credit score. It’s generally best to try to keep your credit utilization below 30%.

The reason credit utilization matters to lenders is that the more available credit you’re using, the more you may be reliant on borrowing. A credit utilization of 75% tells lenders you need to use a lot of your credit, so they may hesitate to approve an application for another credit card or loan. And unfortunately, a high credit utilization could hurt your credit score even if you’re making all of your payments on time.

However, your credit utilization is measured across all of your credit cards. So if you have one card with a $6,000 limit, another with a $4,000 limit and a third with a $3,000 limit, your total limit is $13,000. If you owe $3,500 in total across those three cards, your utilization is about 27%.

That’s why it can sometimes pay to keep credit card accounts open even if you don’t use them very often. Having access to more credit could help lower your utilization.

Payment History

Payment history is one of the most important factors in calculating credit scores. Making credit card payments on time generally helps your score improve. This holds true even if you make only your minimum payments.

Because of this, managing your balance responsibly is crucial. If you make only your minimum payments and allow a lot of interest to accrue, your credit card balance could grow, even if you don’t continue making purchases on that account. The higher your balance is, the harder it may be to keep up with payments and the more likely you may be to fall behind.

How Much Of Your Credit Card Balance Should You Pay?

When you get your credit card statement, you have a choice as to what to pay. And as long as you pay the minimum amount due, you’re considered current on your account. The right amount to pay each month depends on your financial situation.

Paying The Statement Balance

Paying the full statement balance each month is generally the best option to avoid interest charges. This strategy also allows you to keep your credit utilization in good shape.

Paying Only The Minimum

Paying only the minimum keeps your account current and avoids late payment penalties. But if you consistently pay only the minimum, it could raise your credit utilization.

Also, paying only the minimum means you’ll generally accrue interest on your unpaid balance. The longer the balance goes unpaid, the more interest you’ll accrue. If you can afford to pay more than the minimum, it’s a good idea to do so, even if you can’t manage to pay your full statement balance.

Paying The Current Balance

If you can afford it, you may choose to pay your current balance rather than just the statement balance. This could help reduce your credit utilization and free up available credit. If you’re in the process of applying for a large loan, like a mortgage, it could make sense to pay your current balance for the credit score benefit.

The Bottom Line: Understand Your Credit Card Balances For Better Financial Management

A credit card balance is much more than a simple record of what you owe. Understanding the difference between statement balances, current balances, minimum payments and available credit can help you manage your credit cards more effectively. It can also help you choose the right payment strategy to save you money on interest and keep your credit score in good shape.

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Maurie Backman

Maurie Backman has more than a decade of experience covering personal finance topics that include mortgages, loans, retirement, Social Security, and investing. Prior to becoming a full-time writer, she worked in the financial industry as well as in product design and marketing. Maurie holds a bachelor's degree from Binghamton University, where she studied creative writing and finance. She was happy to combine her two areas of study into a career that allows her to educate consumers on a host of financial topics.

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